The 70% Rule in House Flipping: How to Calculate Your Maximum Offer

Most house flips are won or lost on the day you buy. If you pay too much, no amount of renovation skill saves the deal. The 70 percent rule exists to stop that mistake. It is a fast, conservative way to screen properties before you spend time on a full analysis. Here is how it works, where it breaks, and how to back it up with real numbers.

The formula

Maximum allowable offer (MAO) = (ARV × 70%) − estimated repair costs

• ARV (after-repair value): what the home should sell for after renovation.
• Repair costs: the full renovation budget, including a contingency.
• The 30 percent: what is left to cover profit, financing, holding costs, buying and selling costs.

Example: ARV $300,000, repairs $45,000.

$300,000 × 0.70 = $210,000

$210,000 − $45,000 = $165,000 maximum offer

If the seller wants $190,000, the deal fails the screen. That does not mean you can never buy it, but it does mean the numbers need a closer look.

Getting ARV right

ARV is the number most new flippers inflate. To estimate it honestly:

1. Find comparable sales (comps) of renovated homes similar in size, age, beds, baths and style.
2. Use sales within roughly half a mile and the last three to six months where possible; widen carefully in rural areas.
3. Prefer closed sales over active listings; list prices are wishes, not values.
4. Adjust for differences: an extra bathroom, a garage, lot size, a busy road.
5. Ask a local agent who sells renovated homes in that area to sanity-check your number.

Warning: Do not use the single highest sale in the neighbourhood as your ARV. Use the cluster of typical renovated sales.

Estimating repair costs

Walk the property with a contractor if you can, and build a line-item budget:

• Roof, HVAC, electrical, plumbing and foundation (the expensive surprises)
• Kitchen and bathrooms
• Flooring, paint, doors, trim and lighting
• Exterior: siding, windows, landscaping, driveway
• Permits and inspections
• Contingency of 10 to 20 percent, more for older homes

Older homes may need lead-safe renovation practices if built before 1978, and asbestos testing in some materials. Price those in.

Why the 30 percent is not all profit

Here is what typically comes out of that 30 percent on a $300,000 ARV deal. Your figures will vary.

$300,000 × 30 percent = $90,000. Subtract $39,000 and the expected profit is about $51,000, before income taxes. That is a healthy margin for the risk, which is the point of the rule.

When the 70 percent rule fails

• High-priced markets. On a $900,000 ARV, 30 percent is $270,000, more than most flips need. Investors there may work at 75 to 80 percent and still profit, but they must run full numbers.
• Low-priced markets. On a $120,000 ARV, 30 percent is $36,000, which may not cover fixed costs and risk. Some investors use 60 to 65 percent.
• Higher interest rates or long timelines. More months of holding costs shrink the margin quickly.
• Heavy renovations. Big projects carry more overrun risk; demand a bigger cushion.

A full deal analysis

Use the 70 percent rule to screen, then run this full analysis before you make a firm offer:

1. ARV from comps
2. Purchase price you plan to offer
3. Repair budget with contingency
4. Financing costs: points, interest, lender fees
5. Holding costs: taxes, insurance, utilities, HOA, lawn care, security
6. Buying and selling costs: closing costs, commissions, concessions, transfer taxes
7. Timeline: realistic months from purchase to sale closing
8. Profit = ARV − all of the above

Set a minimum profit you require, either a dollar figure (often $25,000 to $40,000 for a first flip) or a percentage of ARV. If a deal does not meet it, walk away.

Taxes on flips

Profits from frequent flipping are often taxed as ordinary business income rather than capital gains, and may be subject to self-employment tax, because you are acting as a dealer rather than an investor. Talk to a CPA before your first deal to understand your situation and how to structure the business.

Negotiating with the number

Knowing your MAO makes negotiation calmer. You can explain your offer to a motivated seller: the home needs $45,000 of work, and here is what it will sell for after. Sellers often accept a lower price when they see a clear, fair reason and a fast, certain close.

Finding deals that pass the rule

Deals that work under the 70 percent rule rarely appear on the open market at the right price. Investors commonly find them through:

• Driving for dollars: noting distressed properties in target neighbourhoods and contacting owners.
• Direct mail to absentee owners, inherited properties and long-term owners with significant equity.
• Wholesalers who put properties under contract and assign them for a fee; always verify their ARV and repair numbers yourself.
• Agents who know investors and can spot listings priced for a quick sale.
• Auctions and foreclosures, which carry extra risk because inspections are limited.

Build relationships before you need them. A reliable agent, a contractor who gives honest repair estimates, a title company and a lender are worth more than any single deal.

Mistakes to avoid

1. Optimistic ARV. Use typical renovated comps, not the record sale.
2. No contingency. Every older home has surprises.
3. Ignoring holding costs. Each extra month costs money.
4. Over-renovating. Finish to the neighbourhood standard, not your personal taste.
5. Falling in love with a house. The numbers decide, not the curb appeal.

Running the numbers on a real-world style example

A three-bedroom ranch in a suburb has renovated comps selling between $268,000 and $284,000. You take a conservative ARV of $272,000. A contractor walkthrough estimates $38,000 of work, plus a 15 percent contingency, for $43,700.

• 70 percent rule: ($272,000 × 0.70) − $43,700 = $146,700 maximum offer.
• The seller is asking $175,000. Your offer of $145,000 is rejected, but the seller counters at $152,000.

Full analysis at $152,000: buying costs $3,000; hard money points and interest for five months about $11,000; holding costs $3,200; selling costs at 6 percent about $16,300; repairs $43,700. Total costs plus purchase = $229,200. Expected profit = $272,000 − $229,200 = $42,800.

The deal at $152,000 still meets a $35,000 minimum profit target, even though it is above the strict 70 percent number. This is exactly how the rule should be used: as a fast screen that triggers careful analysis, not as a final verdict.

Questions readers ask

Can I flip a house with no money?

Some investors use hard money, private lenders or partners to fund most of a deal, but lenders still expect a down payment, reserves and a strong deal. Starting without any capital greatly increases risk.

Your next step

Pick three listings in a neighbourhood you know, pull renovated comps for each, estimate repairs, and run the 70 percent formula. Then run the full analysis on the best one. Practising on paper costs nothing.

The full guide, House Flipping for Beginners, includes deal analysis worksheets, repair estimating checklists, financing comparisons, contractor agreements and a step-by-step plan for your first flip, for $0.99.